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Futures, Contracts And Investments And Returns

  1. Futures contracts

You are the administrator of a gold mine with a monthly production of 25,000 ounces (troy) of pure gold. The board of directors of your company has suggested that you use derivatives to fix the sale price of the gold you are producing for the next six months (Dec-May) so they can prepare foretasted financial statements.

Use live futures contracts to hedge the next six months of production. What is the total cost (margin, opportunity cost) of the hedge (ignore transaction fees)? What exact products (description, details) did you use, how many contracts? (screen captures please…)

Once you have completed the hedge, provide your estimate of the necessity (or not) to hedge gold production for the next six months using fundamental and technical analysis. Do you consider it wise to hedge under the present and expected market conditions? Be convincing, there are large sums depending on this decision (screen captures for all data please…)

2. Investments and Returns

Choose three similar products; an ETF (other than SPY, QQQ or DIA) that replicate an index/sub-index, a corresponding commercial mutual fund and an index/sub-index. You will then have three products that should have the same net return since they roughly represent the same investment.

Provide the details for each asset (type, fees, supplier, etc., but do not bother with the list of holdings!). Compare the compounded annual return of the three products (remove the yearly fees!) for the period covering the past 3 years and provide a conclusion – which asset of the three was the best investment for an individual?

Futures, Contracts And Investments And Returns

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